When you do it correctly, dividend growth investing is a boring hobby. You pick 15-20 blue-chip dividend-paying stocks and keep investing in them for over 30 years.
You hardly need to review your portfolio, check the stock markets, or read the news—you only need to stay the course.
However, what you are building is of great significance. You will have the capital appreciation and dividend income to retire in style and luxury.
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The purpose of dividend growth investing. The purpose of dividend growth investing is to have massive capital gains and a high-yielding source of dividend income.
A dividend growth investing (DGI) portfolio is similar to having a paid-off rental property. You will have an enormous capital appreciation while also retaining increasing rental income.
The concept is to invest in blue-chip stocks like McDonald’s (MCD) that continue to appreciate and increase their dividends. You will dollar-cost average into these positions over the years while reinvesting dividends.
Therefore, while McDonald’s may yield 2.5% today, your yield on cost may be 8-10%. You may have bought McDonald’s when it paid a $2 annual dividend but increased to a $10 annual dividend over the 20 years in your portfolio.
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DGI versus index funds. Index funds differ from DGI stocks because they aim primarily for capital gains. With index funds, you are looking to capture the returns on the stock market.
However, when you retire, you will need to sell these index funds to serve your income. With DGI, your goal is never to trade shares but to live on the dividend income.
DGI versus income investing. With Income investing, you want your dividends today. You do not concern yourself with capital gains, only dividends in your pocket.
To be successful, income investing takes more time studying the markets (stocks, bonds, commodities, and housing). You can automate your income investing to a certain extent, but not as much as DGI.
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The fruits of the DGI tree. Can you imagine owning McDonald’s when they first started issuing dividends (10/20/1987)? MCD’s share price was about $7 in 1987. If you had bought one share in 1987, today, that share pays $5.52 in annual dividends.
Mcdonald’s share price today (8/26/2022) is $262. Not only do you have a fantastic level of capital appreciation, but your income is insane.
That scenario is the fruit of the DGI tree—capital gains and dividend income together to help you live your best life.
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What’s the point of having capital appreciation if you don’t sell shares? You can borrow against your shares at lower interest rates. It is like taking a home equity loan against your house.
If you have a $1 million DGI portfolio, you may want to borrow $100,000 to buy a home. This helps diversify your passive income portfolio.
You won’t reach these impressive numbers with older companies like Procter & Gamble (PG) and Johnson & Johnson (JNJ). However, they are great places to start.
Keep an eye out for younger players. I invest heavily in the Dividend Aristocrats, who have increased their dividends over 25 years.
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However, significant gains will happen with younger companies, but it will take some speculation on your part.
For example, I bought Carrier (CARR) as soon as it started issuing a dividend. I also believe Ally Bank (ALLY) will be a great dividend payer over the years.
I also did some super-speculation with SOFI Technology (SOFI) stock. It doesn’t pay a dividend and isn’t even profitable yet. However, I bought in at $6/share and will wait to see what happens.
If SOFI starts to pay dividends in ten years, these few shares could fund my entire retirement. Sometimes, you have to take an educated guess to make good returns.
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Mix n’ Match. But, getting back to reality, it’s best to go with solid, proven companies. I love watching my dividends grow slowly as the companies pay more to shareholders.
I like to mix and match my DGI investing with income investing. That way, I have that hands-on action I seek, plus the long-term gains of DGI. It’s the perfect balance of automation and daily excitement.
You can stick with DGI only if you’d like. However, I recommend having at least 10-20 stocks in your portfolio. You truly only need one stock to set you up for massive success, but which one will win?
Over the years, companies have risen and fallen. Dividend stocks usually stick around decently long; however, the price may not appreciate as much as you’d like.
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You can look at AT&T (T) and Verizon (VZ) as a couple of companies that have suffered recently. However, the dividends keep coming, and you can offset their share price woes with stocks like Phillip Morris (PM).
Have a long-term outlook. With DGI, you will want to have a long-term perspective. It will be hard for your buddies to understand why you invest in DGI stocks.
You can’t brag about getting your dividend from McDonald’s—at least until it is over $200-$300.
Most investors want to see 10X their money in six months. These scenarios are unrealistic. Most people lose money in the stock market trying to build wealth instead of letting wealth build itself.
Pick new, medium, and old dividend-paying stocks and invest in them over time. You will set yourself up for long-term gains and a massive income.
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Conclusion. The fruits of the DGI tree are sweet and tasty. Only a few will ever experience the feeling of growing their income portfolio.
You can also leave these DGI trees to your future generations, allowing them to build upon your success. They can also leverage these assets to develop businesses and create wealth in other investment classes.
Dividend growth investing is not for everyone, as it requires patience and is boring. Getting rich should be like watching the paint dry.
However, after a few years, you’ll be able to see the magic of dividend growth investing in your portfolio. Stock prices will rise, companies will increase dividends, and your income will compound under your nose.
They say you plant a tree for a younger person to enjoy the shade, and it’s the same for DGI. You’ll enjoy the fruits of your DGI tree in your 60s and 70s. Then you can bequeath them to your children and grandchildren. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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